The research reveals that the first phase of the fintech wave, characterised by recognition of the need for collaboration between ecosystem partners, is coming to an end and identifies two conflicting forces that need to be reconciled before the next phase can begin:

• Among banks, the existential angst of the first phase of the fintech wave has subsided, with comfort provided by the limited success of fintechs so far, and the strength of their balance sheets. As a result, some of the early enthusiasm has lost ground, with introspection replacing zeal for innovation, and concern at their ability to operate at two speeds – one institutional, and a second for innovation.
• Fintechs meanwhile are in a race for scale as the realisation dawns that their size and sales are constraining their ability to compete head-to-head with incumbents. Despite this, successful fintechs are already taking advantage of a digital dividend that is enabling them to expand globally with limited incremental cost to serve.
• While the scale of the challenge facing banks may actually have increased – the research shows an uptick in revenues perceived to be at risk from disruption by new entrants from 27% last year to 31% this year - stronger balance sheets and scale are giving banks renewed confidence in their ability to respond to the challenges of digital finance.

The report also gives further evidence of the growing humility across the financial services industry as both banks and the fintech community come to terms with the need to co-exist in the new ecosystem.

Some of the report's key findings include:

Changing course - matching scale with speed: 44% of bank respondents (compared to 30% in 2017) view the opportunity to create alternative business models as a primary driver to partner, up two places to fourth position from 2017.

Banks - turning the tanker: Enthusiasm for experimental innovation initiatives is subsiding. Banks are keen to work with fintechs to look the part but are increasingly focussed on internal transformation programmes.

Fintechs - the race for scale: Successful fintechs are rapidly gaining commercial confidence. Partnering with banks remains an essential ingredient to success, and is often at the core of their business model, as a means to scale and drive sales.

Resistance is futile. The irrepressible momentum toward open source, platform-centred delivery, dictates that success must rely on engaging with partners across the ecosystem. To that end, neither innovator nor institution can afford to abandon the progress they have made so far in bridging the differences between them.

Download the full report Picking Winners - Determining Success in Digital Finance